A landmark deal that sets a global minimum corporate tax rate has been agreed to by 136 countries, the Organisation for Economic Co-operation and Development (OECD) announced on Friday.
The agreement sees the countries set a minimum tax of 15 per cent on major multinational corporations, a major overhaul of the existing rules that have long been criticized as encouraging tax evasion.
International corporations have come under increasing fire for using legal means to shift profits around the globe in order to pay as little tax as possible.
The minimum tax applies to corporations with annual revenue that exceeds 750 million euros (867 million dollars). The change will generate 150 billion dollars in additional revenue worldwide per year, the OECD said.
The second aspect of deal, which affects US tech giants like Amazon, Google and Facebook, along with other big global brands, requires companies to pay taxes wherever their goods and services are sold, even if they do not have physical offices there.
"This is a major victory for effective and balanced multilateralism. It is a far-reaching agreement which ensures our international tax system is fit for purpose in a digitalized and globalized world economy," said Mathias Cormann, the secretary general of the Paris-base OECD, in a statement.
Years-long negotiations gained momentum when US President Joe Biden took office in January, with his administration throwing its weight into getting a deal done. Progress was then made under the framework of the G7 and G20 this summer.
"Today’s agreement represents a once-in-a-generation accomplishment for economic diplomacy. We've turned tireless negotiations into decades of increased prosperity – for both America and the world," US Treasury Secretary Janet Yellen said.
Of the 140 OECD members, only Kenya, Nigeria, Pakistan and Sri Lanka have not joined up.
But Ireland, which is well-known for its low corporate tax regime, gave in on Friday and said it would abandon its 12.5 per cent rate that had made it attractive to multinationals.
The Dublin government estimates it will lose up to 2.3 billion dollars per year as a result of the reforms, which it believes will lead to some companies relocating.
Infamous tax havens such as the Cayman Islands are also among those taking part.
In addition to Ireland, EU members Estonia and Hungary had also opposed the overhaul before eventually signing up to it.
"Today we have taken another important step toward greater tax justice," said German Finance Minister Olaf Scholz.
"In particular, the approval of the European Union states is a great success and will ensure that the reform can be implemented quickly throughout the EU."
The deal must still be put into law by the individual countries.